Energy Towers redesign prompts scrutiny

By Joseph Basco | jbasco@mrt.com

Published 1:15 pm, Sunday, June 29, 2014

Now that Energy Towers at City Center developers have redesigned the downtown project - with decreases in height, overall square footage and parking spaces - one City Council member expressed desire to renegotiate one of the incentive deals proposed, while others await further information before determining if the incentives need to be reexamined.

On Tuesday, Energy Related Properties, World Class Capital Group and Edmonds International updated council members in a special meeting with the project’s latest design: Two smaller towers that retain most of the multiple uses proposed but lack the ambition of its original 53-floor concept, making the project blend in more with downtown Midland’s existing but retro skyline.

The western building is proposed to have 22 above ground stories that equate to 16 floors of office space, five levels of above-ground parking, and a ground retail floor with two underground floors for a movie theater. The eastern building’s concept design is 20 stories above ground with convention space - likely to be a new Midland Center - hotel space and two stories underground for more parking. Centennial Park is slated to occupy the middle space between the buildings and may serve as another spot for retail space.

The less conservative, more major city-esque 869-feet tall Energy Tower was conceptualized in April 2013 to have a top floor bar and restaurant, 28 office floors, one middle lobby floor, 12 residential floors, 12 hotel floors, an underground floor for retail and a movie theater, five underground floors for 2,920 parking spaces and a park and convention area to the east of the building.

For the original design, the city was going to provide to developers $15 million that has been allocated years ago for Midland Center renovations, $10 million in a 10 year period for infrastructure improvements via the Midland Development Corp., and up-to-$50 million in a tax reimbursement package, according to a Sept. 2013 term sheet the council approved.

Unlike the other two city contributions that are already allocated from pre-existing funds, the $50 million incentive package would derive from 80 percent of property tax revenue, 80 percent of sales tax revenue, and 80 percent of hotel and motel tax revenue that the development would have to generate first. The remaining 20 percent in revenue of each tax would go back to the entity that collects it. In this case, the property tax would go to the downtown Tax Increment Reinvestment Zone and the sales and hotel and motel taxes would go to the city of Midland.

The development incentive, as it is called in the term sheet, is meant to help developers with improving utilities, constructing the parking garage, renovating the park area and developing of the tower itself in that order.

To reach the full $50 million reimbursement, the development would have to likely pay $187 million in taxes first, ERP estimated in April. The co-developer estimated a $1 rebate for every $3.75 the development generates in taxes.

During that time, ERP also announced the change from one building to two. ERP President William Meyer said at that time the change was made after the public responded to the skyscraper as being too tall and outside the scope of what Midlanders are comfortable with.

On Tuesday, Edmonds International gave the public the first in-depth glimpse of the two towers.

Regarding future agreements in a post-two tower design, including the final one, between the city and developers, some council members such as District 2 Councilman John Love and District 3 Councilwoman Sharla Hotchkiss preferred to wait until further negotiations between the city and developers occur before determining if the city incentives should change or not.

“It appears to me, as a new council member, that we have the opportunity for a whole new ballgame,” Hotchkiss said.

But one council member is wanting to renegotiate the $50 million tax reimbursement incentive, as he believes the term sheet approved in September is null and void.

“As far as I’m concerned, the $50 million is off the table, ” District 4 Councilman J.Ross Lacy said in front of the developers on Tuesday. “The scope of this project has changed too much.”

On Friday, Lacy noted how the project’s cost has decreased from $500 million to $300 million and the total scope has decreased 20 percent.

Additionally, developers revealed during the special council meeting that the residential condos plans have been scrapped, parking is now split into one above ground lot and one underground lot, the number of parking spaces have decreased to 1,800 spaces, and the developers intend to make the parking garage privately owned.

The city and developers will likely be negotiating about parking if it is privately owned, as the city has interest in making some parking spaces public for Midland Center.

“If they do want to retain ownership, then obviously the deal does not look that good for the city of Midland like it did previously,” Love said.

Lacy said he is fine with the $15 million for Midland Center upgrades and the $10 million from the MDC but is against the $50 million tax incentive package, as the $75 million total would equate to the city participating in 25 percent of the total cost of the $300 million project. When the Energy Tower project was still a single tower and cost $500 million to build, the city’s $75 million in contributions would have equated a 15 percent participation level.

Lacy gave an amount range that the tax incentive package should decrease to, if any were to still be provided. If the city participation level is to remain at 15 percent, it would require the incentive package to decrease to about $20 million. If the package by itself were to remain at 10 percent of the total development cost, as how the current $50 million in tax incentives were to the $500 million project cost, then the amount would decrease to $30 million.

“If they move forward I think it would be a great addition,” Lacy said, echoing his statements about Energy Tower when he was a candidate running for his seat. “I just do not support tax (incentives). I do not think they’re necessary for a free market enterprise.”

Love, on the other hand, said he is not concerned about having the incentive amount reduced.

“If it’s warranted and needed, then it’s fine,” Love said. “But I don’t have a position that says the deal has to be reduced. I want to do what’s best for the deal, period.”

On July 8, City Council will vote on continuing, terminating or modifying the three existing agreements between ERP and the city. The first agreement pertains to the sale of the former Midland County Courthouse property to ERP; the second pertains to the incentives and city contributions; and the third pertains to the asbestos abatement and demolition of the former courthouse and the Sept. 30 developer due diligence deadline .

The council was originally going to vote on Tuesday -- as it had felt frustration from the lack of communication between itself and developers within the past six weeks -- but instead deferred a vote because two councilmen were not present that day.

If the council decides to continue working with developers on the project, then both parties will work on completing a final agreement before the Sept. 30 due diligence deadline. The three agreements thus far are outlines to what the final agreement may look like.

If the council decides to terminate the agreements, then it would be another blow to the latest generation of efforts to revitalize downtown Midland into a place with more than just office space. Though the Wall Street Lofts near completion and Susie’s South Forty Confections successfully relocated downtown, other downtown Midland projects that asked for some sort of public assistance have either stalled or failed.

At-large Councilman Scott Dufford, said he does not know enough of the latest Energy Towers design in terms of the specific cost of everything, but noted it is obvious the cost won’t be as much now.

“With the redesign, there’s going to be a re-trade on the incentives,” Dufford said. “If we even agree to move forward as a council.”

World Class Capital Group, the co-developer taking the lead in development of Energy Towers, preferred to wait until after the July 8 City Council meeting to comment.